The Theory of Storage and Price Dynamics of Agricultural Commodity Futures: The Case of Corn and Wheat

32 Pages Posted: 24 Feb 2002 Last revised: 5 Oct 2008

See all articles by Guillermo Benavides

Guillermo Benavides

Banco de Mexico; Universidad del Valle de Mexico

Date Written: January 2004

Abstract

Using a restricted version of the BEKK model we test an implication of the theory of storage that supply-and-demand fundamentals affect the price dynamics of agricultural commodities. The commodities under analysis are corn and wheat. An interest-storage-adjusted-spread was used as a proxy variable for supply-and-demand fundamentals to test the aforementioned implication for both commodities. We also test the Samuelson hypothesis that spot prices have higher volatility than futures prices. We found that the interest-storage-adjusted-spread has had a statistically significant positive influence on the spot and futures returns for both commodities. Likewise, the results also show that spot price returns have higher volatility compared to futures price returns which is consistent with the Samuelson hypothesis. The results of the aforementioned tests are consistent with both theories and with the existing literature related to commodity futures.

Keywords: Agricultural commodities, BEKK model, multivariate GARCH, Samuelson hypothesis, theory of storage

JEL Classification: C22, Q14

Suggested Citation

Benavides, Guillermo, The Theory of Storage and Price Dynamics of Agricultural Commodity Futures: The Case of Corn and Wheat (January 2004). EFA 2002 Berlin Meetings Discussion Paper. Available at SSRN: https://ssrn.com/abstract=301226 or http://dx.doi.org/10.2139/ssrn.301226

Guillermo Benavides (Contact Author)

Banco de Mexico ( email )

Cinco de Mayo # 2
Mexico DF, 06059
Mexico

Universidad del Valle de Mexico ( email )

Calzada de Tlalpan No. 3058. Santa Ursula Coapa
Distrito Federal, 29000
Mexico

HOME PAGE: http://ssrn.com/author=386155

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